Further cuts to repo rate unlikely

The Reserve Bank of India (RBI) has cut its repo rate by 150bp since the start of last year, but we believe that it will now keep rates on hold not just at next week’s policy meeting but for the rest of 2016. To the extent the RBI does want to see further loosening, we expect it to focus on improving the transmission mechanism rather than adjusting policy rates. In practice though, with inflation above target and likely to rise in the near-term, it seems more likely now that efforts to loosen policy have run their course.